Restaurant industry in ‘free fall’

More than 110,000 establishments are closed permanently or long term.

December 9, 2020

2 Min Read
Restaurant industry in ‘free fall’
Image courtesy of Midtown Athletic Clubs. Design ©DMAC Architecture.

For nearly nine months, restaurants have been in an economic free fall due to mandated closures and capacity limits associated with COVID-19. New survey findings illustrate continued business deterioration across the restaurant industry, leading the National Restaurant Association (NRA) to send a letter to Congressional leadership, offering support for the moderate compromise proposal as a ‘down payment’ toward a larger relief package in early 2021. The survey was conducted on 6,000 restaurant operators and 250 supply chain businesses from Nov. 17-30, 2020.

“What these findings make clear is that more than 500,000 restaurants of every business type—franchise, chain, and independent—are in an economic free fall,” wrote Sean Kennedy, executive vice president for public affairs for NRA in the letter. “And for every month that passes without a solution from Congress, thousands more restaurants will close their doors for good.”

Key survey findings included:

  • Eighty-seven percent of full-service restaurants (independent, chain, and franchise) report an average 36% drop in sales revenue. For an industry with an average profit margin of 5%-6%, this is simply unsustainable. Eighty-three percent of full-service operators expect sales to be even worse over the next three months.

  • Although sales are significantly lower for most independent and franchise owners, their costs have not fallen by a proportional level. Fifty-nine percent of operators say their total labor costs (as a percentage of sales) are higher than they were pre-pandemic.

  • The future remains bleak. Fifty-eight percent of chain and independent full-service operators expect continued furloughs and layoffs for at least the next three months.

  • The tide of restaurants closures and bankruptcies continues to rise—sweeping away jobs in some of the most venerated independent and chain restaurants:

The results also showed that 17% of restaurants—more than 110,000 establishments—are closed permanently or long term.

The vast majority of permanently closed restaurants were well-established businesses, and fixtures in their communities, NRA noted. On average these restaurants had been in business for 16 years, and 16% had been open for at least 30 years.

Only 48% of these former restaurant owners say it is likely they will remain in the industry in any form in the months or years ahead.

“In short, the restaurant industry simply cannot wait for relief any longer,” said Kennedy. “We appreciate the efforts of a group of moderate members of the House and Senate to advance a true compromise between the competing proposals from Democratic and Republican leaders. If this moderate plan represents a ‘down payment’ for a larger relief package in early 2021, it will provide restaurants with immediate relief to hold on through the most dangerous point in our business year.”

In addition to support of the compromise proposal, the NRA provided a plan for how a proposed second draw from the Paycheck Protection Program (PPP) could be strengthened to reflect the unique business model of the restaurant industry and highlighted other important measures in the proposal that would support restaurants in the short term.

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